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A Nonparametric Approach to Identifying a Subset of Forecasters that Outperforms the Simple Average

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Listed:
  • Constantin Bürgi

    (The George Washington University)

  • Tara M. Sinclair

    (The George Washington University)

Abstract

Empirical studies in the forecast combination literature have shown that it is notoriously di!cult to improve upon the simple average despite the availability of optimal combination weights. In particular, historical performance-based combination approaches do not select forecasters that improve upon the simple average going forward. This paper shows that this is due to the high correlation among forecasters, which only by chance causes some individuals to have lower root mean squared errors (RMSE) than the simple average. We introduce a new nonparametric approach to eliminate forecasters who perform well based purely on chance as well as poor performers. This leaves a subset of forecasters with better performance in subsequent periods. It improves upon the simple average in the SPF for bond yields where some forecasters may be more likely to have specialized knowledge.

Suggested Citation

  • Constantin Bürgi & Tara M. Sinclair, 2015. "A Nonparametric Approach to Identifying a Subset of Forecasters that Outperforms the Simple Average," Working Papers 2015-006, The George Washington University, Department of Economics, H. O. Stekler Research Program on Forecasting.
    • Handle: RePEc:gwc:wpaper:2015-006
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    References listed on IDEAS

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    Cited by:

    1. Constantin Rudolf Salomo Bürgi, 2023. "How to deal with missing observations in surveys of professional forecasters," Journal of Applied Economics, Taylor & Francis Journals, vol. 26(1), pages 2185975-218, December.
    2. Thompson, Ryan & Qian, Yilin & Vasnev, Andrey L., 2024. "Flexible global forecast combinations," Omega, Elsevier, vol. 126(C).
    3. Fernando Faure & Carlos A. Medel, 2020. "Does the Exposure to the Business Cycle Improve Consumer Perceptions for Forecasting? Microdata Evidence from Chile," Working Papers Central Bank of Chile 888, Central Bank of Chile.
    4. Tim Köhler & Jörg Döpke, 2023. "Will the last be the first? Ranking German macroeconomic forecasters based on different criteria," Empirical Economics, Springer, vol. 64(2), pages 797-832, February.
    5. Qian, Yilin & Thompson, Ryan & Vasnev, Andrey L, 2022. "Global combinations of expert forecasts," Working Papers BAWP-2022-02, University of Sydney Business School, Discipline of Business Analytics.
    6. Diebold, Francis X. & Shin, Minchul, 2019. "Machine learning for regularized survey forecast combination: Partially-egalitarian LASSO and its derivatives," International Journal of Forecasting, Elsevier, vol. 35(4), pages 1679-1691.
    7. Yongchen Zhao, 2021. "The robustness of forecast combination in unstable environments: a Monte Carlo study of advanced algorithms," Empirical Economics, Springer, vol. 61(1), pages 173-199, July.
    8. Constantin Bürgi & Tara M. Sinclair, 2021. "What does forecaster disagreement tell us about the state of the economy?," Applied Economics Letters, Taylor & Francis Journals, vol. 28(1), pages 49-53, January.

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    More about this item

    Keywords

    Forecast combination; Forecast evaluation; Multiple model comparisons; Real-time data; Survey of Professional Forecasters;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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